Key facts
- Malta is identified as a destination for U.S. companies seeking to avoid income taxes.
- German officials claim to have data on tens of thousands of companies linked to Malta, with thousands connected to German firms.
- Malta's corporate tax system offers significant refunds on dividends, lowering the effective tax rate to 5%.
- German investigators confirmed a company on the 'Malta list' was used for tax evasion.
- A report suggests combined reporting and 'Tax Haven Lists' as state-level solutions to combat offshore tax avoidance.
Malta is facing scrutiny as a potential tax haven for U.S. companies seeking to shield profits from income taxes. German finance minister Norbert Walter-Borjans has been a vocal critic, alleging that the Mediterranean archipelago facilitates tax evasion. His office reportedly received a USB stick from a whistleblower containing data on 60,000 to 70,000 companies registered in Malta, with an estimated 1,700 to 2,000 having connections to German firms and investors.
Walter-Borjans stated that company models are created specifically to avoid corporate taxes in Germany, and his investigators confirmed a company on the 'Malta list' was used for tax evasion. The German state government plans to share data concerning foreign citizens or companies with relevant countries.
Maltese Finance Minister Edward Scicluna has disputed these claims, questioning the accuracy of the data and stating that Malta's company register is public and does not track offshore entities. He suggested the accusers were misinformed.
International tax lawyer Lars Kelterborn noted that while Malta's system is legal, the key issue is whether shareholders properly report their holdings to their home tax authorities. Malta's corporate tax rate is 35%, but dividend distributions can result in tax refunds, leading to an effective rate as low as 5% for shareholders.
Meanwhile, a report from the Institute on Taxation and Economic Policy (ITEP) highlights that corporations annually shift billions of dollars in U.S. earnings to offshore tax havens. This practice creates an uneven playing field for domestic businesses. The report proposes state-level solutions such as 'Worldwide Combined Reporting' and a 'Tax Haven List' approach to combat profit shifting and reclaim lost state revenue.